03/23/2011

In my previous post, I noted the importance of the renaissance of RFID across industry verticals and what this means for pharmaceutical supply chains in terms of elevating their current level of performance. In this post, I want to focus on another emerging supply chain trend that seems to be gaining significant traction by allowing companies to increase operational responsiveness and flexibility. This area, known as supply chain analytics, hopes to allow for supply chains to quantitatively segment multiple data points to make fact based predictive decisions as a means become “data driven” and improve operational performance.

Supply chain analytics, a somewhat nascent yet growing business intelligence platform, led by companies such as Teradata, is proving to be a powerful force. While most companies across industry verticals measure supply chain performance based on what has occurred solely in the past through metrics, this approach will no longer be sustainable in the future. By contrast, analytics ties future and predictive performance together by analyzing trends based on millions of data points gathered from operational transactions in real time throughout the globe.

The idea of analytics utilized within supply chain management becomes even more important as companies look towards cost containment and freeing up working capital, risk management, sustainability, and increased visibility within their supply chains. Therefore, automating the entire supply chain through advanced modeling and predictive performance is not only here for today, but very well may be the way of the future.

The promise of supply chain analytics allows for “intelligent systems” to learn and adapt to how a particular supply chain is run and then make adjustments accordingly through advanced simulation and complex algorithms. For example, this avant-garde system allows for predictive buying and selling patterns (i.e. what is the supply chain impact of a particular promotional event or seasonal trends) to coincide with the proper level of production, inventory, and distribution to more effectively align costs with revenues. In addition, some companies are even using supply chain analytics software as a competitive advantage, to adjust their supply chains based on market conditions, weather patterns, or customer segments. This ultimately provides the correct level of “end to end visibility” of the performance of each specific node within the supply chain in order to improve responsiveness, contain costs, and improve customer service. Sophisticated modeling and analytics software may also allow companies to uncover data that may be overlooked within traditional ERP and CRM systems.

So what does this mean for pharmaceutical supply chains? For one, it can allow for issues and risks to be predicted earlier, such as seasonal spikes in demand and optimizing inventory accordingly. Perhaps this could allow for these supply chains to finally increase inventory turnover and velocity. Or perhaps analytics could provide a catalyst for pharmaceutical companies to predict CMO or supplier performance, allowing pharmaceutical companies to work with their suppliers before problems arise. While this is just a theory the basic premise is sound, using analytics to make precise decisions with greater agility and speed while having a full understanding of why certain events may or may not happen.

Considering that this is still an emerging trend, we would like to know your thoughts on the future of supply chain analytics in the pharmaceutical industry. Is your company currently utilizing analytics to align supply chain goals with corporate objectives? If so, how is supply chain analytics software being incorporated into your existing technological infrastructure?

03/16/2011

Supply chain visibility has become one of those universal goals – like profitability or high service levels – that every organization wants to achieve. It is certainly easier for businesses to ensure supply chain efficiency if they have real-time visibility into every aspect of their networks – including detailed information on products, suppliers, distributors, carriers and customers worldwide.

In order to achieve a high level of supply chain transparency, companies must share their technology systems and data with the dozens – or even hundreds – of suppliers, distributors, transportation carriers and channel partners that bring their products to market. This information may be seen by thousands of employees in every corner of the world. While there are doubtless benefits to be achieved, increased data sharing also carries an inherent level of risk.

Recently, global media outlets have been extremely busy reporting on damaging information leaks at consumer electronics companies known for carefully staged product launches. In June 2010, a detailed Windows 8 planning document was leaked, following a forum that Microsoft scheduled with computer and hardware manufacturers. A couple of months later, a Verizon Wireless inventory screen shot was posted online, revealing a number of new SKUs with specific model numbers, product features and even order quantities.Blurry Android product photos showed up elsewhere on the Internet.

With today’s competitive pressures, short product lifecycles and continuous innovation, companies cannot lose sight of one simple fact: information is power. A potentially game-changing new product design will not change anything if key competitors obtain classified knowledge. As such, it comes as no surprise that – along with broad visibility – secure information management is emerging as a core competency for supply chain leaders worldwide.

Leveraging S&OP for Secure Information Management

Just as supply chain technologies and associated business processes have enabled the broad collection and sharing of data, these same tools and processes can help to manage inherent risks that come with collaboration. Involving trade partners at the last possible moment though real-time demand sensing, decision postponement and inventory agility – all of which are foundational strategies for effective supply chain management – can help ensure the protection of sensitive information. But because many high-tech product components require six to 18 months of lead time, some companies must bring their suppliers on board early in the production process.

Supply chain leaders in every industry are demonstrating that data can be safely shared across multiple trading partners – as long as this occurs as part of a carefully controlled, tightly managed, collaborative sales and operations planning (S&OP) process that spans the global network. From the moment that new products are conceived and production planning begins, these leaders implement strategic S&OP activities that involve their trading partners. Technology supports well-managed S&OP processes by ensuring a high level of collaboration from key suppliers while controlling their access to sensitive information around end products, launch dates and sales forecasts.

Sharing POS Data to Strengthen Retailer Relationships

The balancing act to ensure that there is information flow, cross-company collaboration and supply continuity while keeping critical competitive information under wraps can be tricky. However, some businesses are emerging as leaders in successfully bringing innovative new products to market — both securely and profitably.

Due to its focus on identifying consumer needs at the individual store level, a leading consumer electronics manufacturer generates a wealth of demand and sales information every day. As part of a collaborative S&OP process it executes in partnership with its key retail partners, the manufacturer uses electronic data interchange feeds and other communication tools that provide store level point-of-sale (POS) information for all of its products. Data arrives daily and is reviewed weekly by the manufacturer. “Slicing and dicing” this information in various ways reveals demand trends across the company’s entire product portfolio down to the product model, retail channel, geographic region and individual store levels. In turn, these insights drive intelligent optimization engines to determine the most effective replenishment and promotional strategies in support of collaborative S&OP. These consumer insights also fuel future product development.

With this incredible level of visibility, the consumer electronics manufacturer has gained a significant competitive advantage and strengthened its retailer relationships. Its deep level of POS information allows the business to anticipate market shifts and monitor trends in real time.

However, this huge volume of data also presents risks to the business. Information security is paramount as the manufacturer collects and analyzes this information, sharing it selectively with retail partners to demonstrate its knowledge of their own shoppers. To protect this highly detailed consumer data, the company uses a number of closed-loop business processes, software solutions and user protocols to ensure that the information remains secure at every step. Both the company’s retail partners and employees are monitored closely to ensure that key data and insights are accessed only by those who have clearance to access this proprietary information. By building data security measures into its foundational S&OP processes, the manufacturer can safely collect and protect an enormous amount of sensitive market data.

Earning Customer Trust as a High-Tech Component Supplier

As a leader in providing premier power solutions to global electronics leaders – including Dell, Intel, HP, Samsung and Motorola – ON Semiconductor understands the complex security challenges of high-tech component suppliers. In addition to building its global supply chain for agility and implementing collaborative S&OP, which are essential when supporting consumer product launches, ON Semiconductor uses closed-loop business processes and secure technology to safeguard all component orders, delivery dates and other data that could be used by competitors to anticipate a product launch.

ON Semiconductor strives to meet the stringent demands of its high-tech customers. These companies value trust and collaboration as much as they value high-quality components and on-time delivery. Due in part to its robust, secure business processes, ON Semiconductor is a preferred partner of consumer products leaders and their global manufacturing partners – all of which rely on the company to safeguard their competitive information.

Maximizing Collaboration While Minimizing Exposure

Robust S&OP processes such as those used by the aforementioned supply chain leaders requires close partner collaboration and the secure exchange of valuable information. Organizations that want to adopt a similar approach should bear in mind these four suggestions to minimize risk when sharing supply chain information with their trading partners:

• Synchronize and align product development with the rest of the supply chain. While many companies manage product development as an isolated activity, this is an area of the business where ongoing governance is most needed. The business rules, predefined partner roles, and permissions and authentifications demanded by a tightly managed S&OP process ensure that launch information is as carefully controlled as the rest of the supply chain’s sensitive data. In addition, the overall supply chain can be properly positioned to phase products in and out, which can otherwise create a great deal of stress on operations.

• When launching new products, minimize the number of partners who are directly involved. Product launches are exciting events and it’s not surprising that organizations want to share information about their latest innovations with all of their trading partners in order to strengthen their relationships. However, most product launches require the active participation of only a few key partners — and going beyond that limited network exponentially increases the risk that proprietary information will be leaked.

• Limit the amount of non-critical information shared with suppliers. Even when suppliers must be involved in prelaunch activities, organizations can make strategic decisions about when and how much information should be shared. The more sensitive the information, the more suppliers should be operating on a “need to know” basis. Suppliers play a key role in meeting launch deadlines, but do not need to know every detail about product features, price points or sales forecasts.

• Maintain and enforce strict confidentiality agreements. Every company should manage its trading partner relationships via carefully conceived contracts that, in addition to spelling out roles and deadlines, should also include strict confidentiality clauses and penalties if they are violated. Such contracts remind partners that data security is a shared responsibility and that information access should be limited within their own businesses via passwords, authentifications and other security measures.

There is no question that new supply chain processes and technology have created enormous benefits. Today, information can easily and quickly be shared among a diverse, complex, geographically distributed network of trading partners around the world. Unfortunately, such speed and agility also create the possibility that sensitive information can be mishandled and shared with the world instantly – as shown in recent headlines. The “dual-edged sword” of visibility makes it imperative that organizations complement their speed and power with an equal measure of discipline and control.

03/11/2011

The warning signs are there for all to see. Just last week, the price of oil topped $100 a barrel for the first time in three years. And, despite an upbeat message from Federal Reserve chairman Ben Bernanke, the Dow Jones Industrial Average dropped 58 points at the end of February, with investors clearly worried about the impact of higher commodity prices. Even without fuel and food, the recent release of the Consumer Price Index saw some of the largest increases in recent history.

You don’t have to look far to discover the causes. In addition to bad weather all over the globe, the remarkable series of popular uprisings across Northern Africa and the Middle East is threatening to topple any number of autocrats and aging dictators. And while that’s good news for lovers of democracy, the situation creates massive uncertainties about the future price and supply of oil and other key commodities.

But perhaps “uncertainty” is the wrong word. Because one thing is certain: fuel prices are going up. Don’t be shocked to see gasoline at $4 a gallon this summer, or crude oil passing the $100-a-barrel benchmark without slowing down.

In fact, oil is just one of many commodities that global businesses need to be worrying about right now. (Copper and cotton are also seeing big price increases.) The key to a successful supply chain used to lie in cheap manufacturing. Now it’s all about how you cope with volatility in commodity markets.

Manufacturers are responding by beefing up stocks of commodities and raw materials, locking into current prices. That strategy, according to the Institute for Supply Management, has been driving up inventories for some time now. (February broke a seven-month streak of rising inventory levels, ISM reports. Companies are borrowing for that purpose – yes, banks are finally beginning to lend again – and the resulting infusion of fresh funds into the U.S. economy threatens to fuel inflation. Which, of course, gives consumer-goods producers yet another reason to jack up prices at the shelf.

At times like these – just prior to what appears to be a big leap in commodity prices – smart companies like to engage in hedging strategies. Southwest Airlines is well-known for its forward-buying of jet fuel in the early 2000s, a strategy that served it well when oil prices soared, then backfired when they declined. Paul Martyn, vice president of marketing with supplier-management expert BravoSolution, says this is a good moment to be thinking about such a move again.

“It’s an interesting time to be hedging against long-term inflation, and at the same time keeping enough supply flexible in commitment to take advantage of ripe opportunities,” says Martyn. The question, of course, always remains: are we at the peak of this particular pricing trend in critical materials, or is there room for further increases? When it comes to oil, I haven’t heard anyone who believes the price is about to level off, much less drop.

Companies have paid the price of being too cautious in their inventory strategies before. Global demand for coffee fell off sharply in 2008 and 2009, Martyn notes, and suppliers reacted by cutting production. Then bad weather in Asia and Latin America caused a serious shortfall in supply, causing coffee prices to skyrocket. “An aggressive company could have gone in there and taken advantage by building up inventory,” Martyn says. “It would have been a dominant strategy.”

Which way to go now? Martyn says purchasing managers need to align themselves with finance and operations in order to assess the situation properly. Currency valuation is another possible area where hedging might be called for.

Whatever you decide, don’t do it purely for the sake of speculation. The goal of hedging should be to take risk off the table, not increase it, says Jason Busch, managing director of Azul Partners. It’s one thing for Apple Inc. to buy up most of the world’s supply of flash memory or LCD touchscreens for its iPhones and iPads. That’s to ensure that the company has enough capacity to meet demand, while squelching similar efforts by its competition. Or maybe a high-tech manufacturer has a chance to pick up extra supplies of a rare earth metal like tantalum, which is in perpetual short supply. But if all you’re doing is playing the commodities market, “that’s bad,” Busch says. “Speculation is a game for traders, trading companies and investors.”

Hedging also entails some accounting issues. Busch says the purchaser needs to mark an asset at its current value on a quarterly basis, which is fine if the locked-in price remains below market levels. But if the company’s long-term cost begins to exceed the market rate, then the implications on its balance sheet can be severe.

In any case, there’s more than one way to engage in the hedging of commodities. “The most important thing is creating transparency,” says Busch. “It’s critical to understand not only what you’re buying, but what your suppliers are buying as well.”

The answer might be as basic as solidifying long-term relationships with suppliers. Those who make the effort find themselves with access to key materials when stocks are low, says Martyn.

Right now, with commodity prices and consumer demand on the rise once more, the biggest risk for manufacturers is doing nothing. “History has shown that those that walk confidently and firmly are the ones that take advantage of these upswings and can launch their companies into a decade of success,” Martyn says. “Those that sit on the sidelines as prices increase whittle away their advantage.”

03/08/2011

Young Chul Kim, Director of U.S. Product Management, TAKE Solutions | January 17, 2011

Cross-docking has emerged as a popular strategy for third-party logistics providers and organizations with extensive distribution networks. The practice of immediately converting inbound deliveries to outbound shipments offers significant financial and operational advantages. Specifically, it reduces inventory costs by eliminating intermediate warehousing activity. It also improves delivery times by making shipments instantly available for delivery — without the delays incurred by transferring shipments to and from a warehouse.

Effective cross-docking requires continuous real-time visibility of shipments as they move from the supplier to the end customer. Unfortunately, even with warehouse management modules supporting cross-docking installed, traditional enterprise resource planning technology doesn’t offer the real-time visibility and accountability to optimize cross-docking efficiency. Because of their focus on the financial impact of business activity — including shipping, receiving and warehouse operations — ERP applications essentially overlook the importance of real-time visibility for efficient cross-docking of shipments. Furthermore, typical ERP systems string traditional transactions to be executed automatically to emulate cross-docking, without providing granular details specific to the cross-docking transactions.

Without the ability to track shipments on a real-time basis down to the level of individual parcels companies can lose control over inbound materials, increasing the potential for duplicate shipments, delayed shipments and other errors that can offset any gains in efficiency. This functional technology gap poses a significant challenge for 3PLs and distributors. Without tracking and tracing capabilities designed specifically for cross-docking, companies risk building up excess inventory and incurring the administrative overhead required to receive and process “rogue” shipments. Companies simply don’t know the status of cross-docked items, which in turn means they can’t fully control the flow of shipments from suppliers to customers or troubleshoot missing, duplicate or misdirected shipments.

Even with an existing ERP investment, organizations that want to achieve best-in-class performance in cross-docking will need to fill the gap with an additional supplier technology that addresses three key operational priorities for cross-docking activity:

• Traceability. Up-to-the-minute historical records of shipping activity, down to the individual parcel level, to isolate errors and bottlenecks, and simplify troubleshooting as it pertains to cross-docking.

• Compliance. The capability to enforce rules and standards that ensure shipment accuracy, timeliness and approvals.

Ideally, the solution should include an integrated combination of cross-docking components with real-time tracking and tracing capabilities to improve visibility, centralize receiving and distribution activities, and capitalize on the efficiency gained by consolidating shipments and optimizing delivery schedules. Consider the following “must-have” cross-docking solution checklist to help continuously improve key performance indicators and the customer experience:

Advanced Labeling. Suppliers must have the capability to generate labels meeting the requirements of the customer and the 3PL. The label should include a unique identifier — or parcel tracking number — that provides ongoing visibility of shipment status and history.

Distinct Tracking Database. Information on cross-docked shipments should reside in a distinct database that provides the audit trail on individual shipment status and a view of shipping activity spanning all suppliers.

Mobile Data Collection Devices. Because effective cross-docking requires the coordinated actions of a widely distributed team, mobile data collection technology is essential. Handheld devices should allow drivers and shipping and receiving personnel to scan inbound and outbound shipments slated for cross-docking. The handheld devices can communicate directly with the tracking database via a wireless connection or store-scanned information for batch uploads to the database at a later time. The devices should also feature the applications that enforce predefined receiving, delivery and cross-docking parameters designed to minimize shipping errors and subsequent returns.

Supplier Sweep Support. Cross-docking is focused on the receiving, staging and shipping of data in an optimal way from multiple suppliers. Often, 3PLs and organizations with extensive distribution networks want to extend the receiving process to their supplier to manage pickup to ensure just-in-time receipt to the cross-dock. Ideal cross-docking solutions support supplier sweep pickup of inbound materials to the cross-dock. While cross-docking is an appealing practice for companies looking to maximize supply chain efficiencies, it follows the same basic rule as other data-driven supply chain practices: You can't improve what you can't control. To achieve best-in-class cross-docking performance, companies must ensure visibility, traceability and compliance. Adopting this strategy delivers significant financial and operational advantages.

Milk Run Delivery Support. Many complex companies want to manage the delivery of cross-docked goods in the same system to synchronize the data and ensure traceability of each part. Cross-docking systems should support the ability to control part delivery and ensure delivery to the correct location and even, if applicable, the correct person.

Validation and Reporting. The cross-docking system must feature the search and reporting capabilities that allow a central administrator to perform end-of-day validation on materials on hand and delivered to help minimize any misdirected or duplicate shipments. The capabilities must support consolidation of information across suppliers and customers and allow the administrator to drill down to information on individual shipments.

Returns. The ideal cross-docking solution will also create a unique identifier that provides similar visibility and traceability for the returns process. Handheld data collection devices must also enforce compliance with agreed-upon returns policies.

While cross-docking is an appealing practice for companies who want to wring every drop of inefficiency out from their supply chains, it follows the same basic rule as other data-driven supply chain practices: You can’t improve what you can’t control. In order to achieve the utmost performance in cross-docking activity, organizations should complement existing ERP applications with integrated capabilities in the areas of visibility, traceability and compliance. Otherwise, expect to run the risk of multiplying the same inefficiencies that cross-docking is intended to address.

Analyst Insight: A remarkable number of executives attempt to manage large inventory investments with lots of data but very little information –just pages full of numbers, none of which is very meaningful without (often significant) effort. And, frequently, it’s just data from the current period, minimizing the possibility of understanding whether performance is improving or declining except by working from memory at the very highest levels. The firm’s owners, and the executives in charge, deserve much better.

–Ralph Cox, principal at Tompkins Associates

Surprisingly, in some very successful firms, the simplest questions are the most difficult to answer – basic questions regarding inventory cost and customer service performance. For example, reasonable questions, like the following:

“Are our order fill rates up for every safety stock class in each DC over the same time last year?” or

“Were our promotion lift forecasts more accurate for all product families this fall than they were last spring?”

If the answer is “no,” the next question is sure to be “why?” Then the emails commence. Heaven forbid that the executive would want to understand to what extent each of the underlying driving forces or root causes contributed to any change.

The lack of easily accessible, meaningful information and the associated impediments to insight into inventory performance over time is a weak link, waiting to fail and hurt the bottom line. Selecting what to report and, perhaps more importantly, at what level of product, organizational and logistical aggregation to report and with what drill-down capability is an art.

Creative and thoughtful exploration of options – especially with the actual figures – can yield important possibilities. Having useful reports that provide quickly comprehensible performance change from season to season is a necessity for good inventory decision-making. The best reports are graphical and dynamic via the use of menus.

The Outlook

Business intelligence and data warehouse query tools have great potential for assimilating data and displaying just what is needed. The best of them are flexible and easy to evolve as events unfold – a crucial differentiator. However, the first step is recognizing the importance of viewing and understanding performance over 12 to 24 months to provide context. Then, expect clearer information from your systems and organization. The data is all there, but you need understanding – something infinitely more valuable.

02/27/2011

Analyst Insight: As high-tech companies move forward into 2011, it is critical to develop a list of supply chain priorities for the year. Topping this year’s list is a renewed focus on logistics and manufacturing outsourcing and an increased sense of urgency in developing the Chinese consumer market for new revenue. In addition, there is a growing need to create additional value from an often under-appreciated source – the service supply chain.

–Greg Hazlett, principal at Tompkins Associates

The past year’s challenges have left high-tech companies with a new set of significant priorities for 2011. Below are the top 11.

Globalization - China as a Consumer Market: Global business is looking to China not only for sourcing and production but for growth. Companies around the world are gearing up to begin selling or further ramp up sales capabilities into China’s growing consumer market.

Reverse Logistics/ Service Supply Chain: The service supply chain helps companies differentiate themselves from their competitors while reducing costs and improving residual value recovery from their returned products. Transforming high-tech service supply chain organizations into profit centers will be a game-changer for companies in this industry.

Uncertainty: Today, uncertainty is certain. High-tech organizations must accept uncertainty and implement agile processes that allow them to move forward. The best strategy is to respond to uncertainty and make it an ally in achieving profitable growth.

Sustainability: In the U.S., nearly 70 percent of heavy metals in landfills comes from discarded electronics. Companies are fighting to be environmentally friendly and keep the costs of recycling, de-manufacturing and scrap at a minimum.

Tax-Effective Supply Chain Management: TESCM is the process of integrating tax planning into the overall management of the company’s supply chain and is an important priority to be considered.

On-line Digital Content to Drive Product Innovation, Acceptance and Obsolescence: Audiences today can stream almost any digital content they want, at any time. Enhancements in digital delivery and usage, including cloud computing and mobile phone applications, are indications of market acceptance. How high-tech companies respond and innovate will determine what audiences embrace or reject.

Inventory Working Capital/Sales Optimization Planning: With demand returning, the “people, processes and technology” of Sales, Inventory & Operations Planning must be brought to a new level to enhance inventory turns while improving customer service.

Strategic Market Planning and Growth: M&A activity for technology companies is rising, due to recession pressures that created bargain prices for various technology companies. But risks persist, and success comes from gaining a leading and sustainable position in the served markets.

The Outlook

With these top priorities in 2011, high-tech companies have their work cut out for them. However, it is not as simple as completing one task and moving forward. High-tech companies will need to ensure that each of these areas are included in their continuous improvement strategies.

02/26/2011

Analyst Insight: Research shows that more than 60 percent of organizations do not yet have an RFID tagging program in place. Many of the organizations that have implemented RFID have done so to satisfy customer compliance demands and have not used their RFID systems to enhance their own warehouse and logistics operations.

RFID is still in its early adoption stage, so should an organization consider devising a strategy to implement RFID? The logical question is “what are the benefits?” APQC’s research on RFID tagging strategies found the most frequently cited benefit was improved distribution processes.

Working with the Council of Supply Chain Management Professionals (CSCMP), APQC is able to bring additional information to light on the question of the benefits of RFID. Research co-sponsored by CSCMP, the Voluntary Interindustry Commerce Solutions Association, and the University of Arkansas found that RFID used at the pallet and case level shows benefits in reduced stockouts and improved inventory accuracy, which is one of the keys to an efficient and effective supply chain.

In one instance in the CSCMP research, inventory accuracy in a retail store using item-level RFID, relative to a control store without item-level RFID tags, improved by 17 percent. In addition to the overall effectiveness of RFID for inventory counting (close to 100-percent accurate), the research showed that the time savings for counting inventory – especially when compared to other methods such as bar-coding – is significant. In one instance, an activity that took only seven seconds for items using RFID tags required nine minutes when bar-coding was used.

The co-sponsored research highlighted another benefit of RFID: it is able to eliminate “frozen” inventory. In some out-of-stock situations the system “thinks” ample product is available when it is not. The inaccuracy could cause the system to not place a re-order for the product. Consider an example where the system thinks it has six units of inventory, the re-order point is five units, and the store actually has none. Since the store can’t sell what it doesn’t have, the number in the system will not get checked, e.g., it’s frozen, and no re-orders will be placed.

This is the ultimate out-of-stock situation – the store has no product and will not order any product because the system thinks it has more than the re-order point. In the retailer in this study, after implementing RFID, the number of frozen items dropped to zero and stayed there. With RFID, in this case, all occurrences of frozen out-of-stocks have been eliminated.

The Outlook

The use of RFID in the retail space has potential benefits for customer service. Accurate and timely information about product order, delivery, location, and stock level help retailers to have the products their customers want when they want it.

02/24/2011

With economic times remaining uncertain, more retailers and manufacturers are investing in reverse logistics systems to help maintain their margins and reduce returns costs. Most enterprise resource planning systems will provide some returns management capabilities. However, a more specialized reverse logistics solution will provide the functionality necessary for running a best practices returns process, ultimately reducing returns costs, improving process control and increasing efficiency.

–Derek Singleton, ERP market analyst at Software Advice

U.S. companies spent more than $100bn processing returns in the last year alone. An organization's capacity to profit despite these losses is largely based on the efficiency of their reverse logistics management. Reverse logistics software can improve the returns management process and reduce losses. In some cases, organizations may even be able to turn their returns process into a revenue generating activity.

While each industry will face unique reverse logistics challenges in 2011, we think there are three common obstacles most will encounter:

Tracking goods as they travel through the returns process - Poor product visibility in the reverse supply chain creates inefficiencies and allows for costly mistakes like the misplacement of a returned item. The issue becomes more difficult when products are not in their original packaging or when products have a short shelf life and need to be transported quickly (e.g., transporting a DVD title from a poorly performing store to another store that is selling out of the same item).

Companies need some kind of track-and-trace capability to gain better visibility into where a good is in the reverse supply chain process. For starters, companies can use bar-coding and radio frequency identification to tag items before moving back through the supply chain. Enhancing the visibility of inbound returns allows businesses to adjust staffing levels according to inventory fluctuations. This enhanced visibility also helps maximize the value of returned merchandise by creating inventory alerts when products are ready for resale.

Complying with government regulations - Businesses should expect environmental regulation around parts and product disposal to continue to tighten. This trend will be strongest for the recycling and disposal of e-waste, the nation’s fastest-growing source of waste. In 2010, seven states added e-waste recycling laws to their books, and more such legislation is coming. With more states passing regulation laws, it will be more important to document compliance with regulations.

Reverse logistics software addresses this issue by automating compliance reports to prove that government regulations were followed. A reverse logistics system captures product data at each stage of the technical process and then produces compliance documentation in a customer report. Automating compliance reports eliminates documentation errors and reduces staffing requirements to produce compliance reports.

Adjusting to increased customer pressure - Customers are beginning to expect businesses to take back products regardless of the reason. Research indicates that customers will stop shopping with retailers and manufacturers if the returns process is a hassle. To avoid losing customers because of an unwillingness to accept returns, reverse logistics operations will have to become more customer oriented.

Reverse logistics software can move businesses toward that end by automating the return process. When a customer returns a product, reverse logistics software can automatically create a customer tracking code. With this code, customers can stay up to date with the returned product’s status and location. This significantly reduces call center inquiries about returned merchandise and improves satisfaction. Systems further improve the customer experience by automating the credit process and reducing the time between the return and refund payment.

The Outlook

We expect more companies to implement reverse logistics software in 2011 as they recognize the competitive and strategic value of effective returns management.

02/22/2011

Analyst Insight: With encouraging signs emerging of a moderate global economic recovery, many companies are preparing their global supply chains to resume a flow of goods that will enable business growth. Taking this change of pace into account, 2011 will be much different than 2008 and previous years.

–Gene Tyndall, executive vice president, Tompkins Associates

The complexities of managing global supply chains are becoming more prominent. During the unprecedented growth years prior to 2008, top issues surrounded volumes, lead times, and securing container space to meet delivery dates. During the economic downturn, companies were focusing more on costs, volume reductions and inventories. Now, as some growth is coming back, supply chain managers are discovering that recovery is not as simple as returning to the way things were in the past.

First, capacities are reduced. Ocean liner companies have decreased or relocated capacity, and even air cargo space is limited. As North American exports are increasing, positioning of containers and ports of call are not easily aligned with shippers’ new needs. Until supply can catch up with demand, achieving efficient international freight flows will be challenging.

Second, multinationals are searching and finding new and emerging markets. China, India, Southeast Asia, Central and South America, Eastern Europe, and the Middle East/Africa are becoming more attractive locations to sell goods. This is challenging supply chains to extend into geographies that were not previously served.

Third, sourcing has been diversified. Many companies have spread out their strategic sourcing locations over the past few years, as their total delivered costs from China became better understood and increases in labor compensation and taxes became reality. Few have abandoned China for sourcing, but some have diversified to other Southeast Asian countries and/or to Latin America, among others. Just as with distribution, global supply chains are being stressed from new sourcing points.

Fourth, there has been a renewed focus on cost, speed and quality. Providing better information on the total costs, more emphasis on meeting just-in-time or delivery windows, and a higher focus on service quality all contribute to pressure on global supply chain managers to not only move the goods but to get them moved cheaper, faster and better.

Last, and certainly not least, is the increasing risk involved in global supply chains and the corresponding need for flexibility. Goods in motion for 8 to 12 weeks can create numerous opportunities for risk – security, weather, labor actions, and others. These can cause serious supply chain disruptions that impact suppliers and customers.

The Outlook

These five factors translate into new challenges for global supply chain managers in 2011 and beyond. Uncertainties are here to stay, and the challenges are different today. Back to the future will not mean business as usual. Global supply chain managers need to plan for the changes and contingencies, based on the new realities of their business objectives. The old ways will not meet the new requirements of today’s global supply chains.

nalyst Insight: APQC has worked with a number of leading-edge organizations to learn how they design and implement responsive, cost-effective and efficient channels for the backward flow of returns. One aspect of successful reverse logistics is the strategic design of the returns function. The critical elements are gaining stakeholder support, identifying and solving the reasons for returns, and developing a sound disposition plan.

Raising awareness is key to designing a successful reverse logistics program. The best-practice organizations APQC studied recognize the importance of reverse logistics initiatives in meeting the organization’s goals. They implemented and continue to execute their returns programs in order to accomplish common goals such as increased profitability, increased customer responsiveness, and maximized asset recovery.

Cross-functional support for reverse logistics is also critical. Best-practice organizations create cross-functional alliances among the reverse-logistics team and finance, sales, procurement, manufacturing, and customer service. The alliances were involved in setting reverse-logistics and returns management policies.

Another important process is analyzing returns information to minimize returns. Reason codes – shorthand explanations for customer dissatisfaction – were developed to communicate returns information. The goal is to identify and correct counterproductive internal processes that lead to returns.

Finally, best-practice organizations make disposition part of the reverse logistics strategic design. The organizations work with customers and suppliers to predetermine disposition business rules to minimize handling and improve asset recovery. Innovative disposition avenues were sought not only to remain compliant with environmental regulations and minimize risk, but also to recover the most value from returned product.